Genworth's IPO fights back to flat line

GE spin-off raises $2.83 billion as biggest so far in 2004

By

SteveGelsi

NEW YORK (CBS.MW) -- Genworth Financial's initial public fought its way back to end the session flat with its offering price as the overall market lifted the big insurance IPO in its first day of trades on Tuesday.

Richmond, Va.-based Genworth Financial
GNW, +0.58%
opened at $19.50, even with its $19.50 price. The stock fell as low as $18.75 before fighting its way back in afternoon action to close where it began, at $19.50 per share.

With nearly 40 million shares changing hands, Genworth led volume of the Big Board. The IPO gained ground as the Dow Jones Industrial Average
DJIA, +0.24%
rallied 159 points. See full story.

The insurance firm, which is being spun off from General Electric
GE, -0.13%
debuted 145 million Class A shares, generating proceeds of $2.83 billion, as the biggest IPO of the year.

"If GE doesn't want it, why should anyone else get excited about it?" said IPO analyst David Menlow of IPOfinancial.com, about the offering's lackluster debut.

IPO analyst Francis Gaskins said the offering drew a discount to the asking price, which he saw as higher than those of big insurance firms that have gone public recently, such as China Life
LFC, -0.56%

Genworth will rival Google and its expected $2.7 billion purse for the title of most lucrative IPO to date this year, but the deal is kicking up considerably less hype.

GE is selling 30 percent of Genworth to the public with Morgan Stanley and Goldman Sachs serving as underwriters. Shares of GE closed 1.4 percent higher.

"It's great to see that even in this tough market we have been able to launch an IPO that ranks as one of the largest ever," GE CEO Jeffrey Immelt said in a statement. "Headwinds from a number of external factors - from oil prices and geopolitics to interest rate uncertainties - haven't prevented investors from recognizing the opportunity that Genworth represents."

The company carried a market cap of about $10 billion at its IPO price.

Sal Morealle, an IPO trader for Cantor Fitzgerald, said Genworth had to compete with several other deals debuting this week in a flurry of activity ahead of the Memorial Day weekend.

The IPO parade continues Wednesday with the expected debut of Standard Parking and Acadia Pharmaceutical. See full story.

In its IPO of the Week column, fund manger Renaissance Capital said the Genworth offering "has a lot going for it," such as the potential to grow both revenue and net income.

Renaissance Capital added, however, that potential investors should be aware that GE plans to reduce its ownership in the company to below 50 percent within two years, leaving an overhang of stock. See full story.

Genworth represents a myriad of insurance businesses offered by GE, a Dow Jones Industrial Average component.

Genworth reported first-quarter earnings of $266 million on revenue of $2.6 billion, up from $240 million in net income and $2.4 billion in revenue in the year-ago period.

Genworth drew praise from bond rating agency A.M. Best, which said in a note on Tuesday that the IPO will yield a "significant source of new capital" for the insurance firm.

"A greater strategic focus on those operations is provided, as its goals had become increasingly divergent from its parent's, and the competition for financial and other resources between Genworth and GE's other enterprises has been lessened," A.M. Best said.

Genworth marks the third big insurance spinoff of the year.

Assurant
AIZ, -1.13%
raised $1.8 billion at its Feb. 5 IPO price of $22 per share as a spinoff of European financial services giant Fortis. The stock is now trading at nearly $25.

Assured Guaranty
AGO, -0.19%
raised $882 million at its April 23 IPO price of $18 per share as a spinoff of Ace
ACE, +3.70%
The stock is now trading at $16.50.

Series of transactions

In a series of transactions tied to the IPO, the company will issue 490 million shares of Class B common stock to acquire all the assets and liabilities of GE Financial Assurance Holdings, which provides life insurance, long-term care insurance, group life and health insurance, annuities and other investment products, as well as U.S. mortgage insurance.

Genworth will also acquire other insurance businesses owned by other GE subsidiaries but overseen by the company's management team. These businesses include international mortgage insurance, European payment protection insurance, a Bermuda reinsurer and mortgage contract underwriting.

A series of other transaction and financial securities will accompany the Genworth deal, including $600 million of equity units and $100 million of Series A cumulative preferred stock.

GE said it expects to receive net proceeds of about $2.5 billion to $2.9 billion from the offering, and said the IPO will leave GE with significant opportunities as it makes "an orderly reduction in GE ownership over the coming months and years."

But including impact from the Genworth IPO, GE said its 2004 forecast remains the same -- $1.54 to $1.60 a share, according to comments made by the Dow component's chairman and CEO Jeff Immelt at the Electrical Products Group Conference held on May 5.

Republic Airways taxis to runway

Also this week, Republic Airways
RJET
plans to offer 5 million shares at $14 to $16 each in a bid to raise up to $80 million with underwriter Merrill Lynch.

The carrier reported net income of $9.9 million and revenue of $119 million in the first quarter, compared with $8.7 million and revenue of $94 million a year earlier.

The Indianapolis-based company operates Chautauqua Airlines and Republic Airlines, with code-share agreements with AMR
AMR, -6.74%
US Airways
UAIR
and Delta Air Lines
DAL, +0.25%
Delta owns a 17 percent stake in the company.

Standard Parking eyes IPO

Standard Parking
STAN, -0.45%
plans to offer 4.1 million shares at $14 to $16 each, in a bid to raise $66 million with underwriters William Blair and Thomas Weisel Partners.

The Chicago-based nationwide parking-space seller reported net income of $75,000 and revenue of $144 million in the first quarter, up from a loss of $963,000 and revenue of $130 million in the year-ago period.

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